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One of the major debates in open economy macroeconomics is the extent to which capital inflows are beneficial for growth. In principle, these flows allow countries to increase their consumption and investment spending beyond their income by enabling them to tap into foreign saving. Periods of such borrowing, however, are associated with large trade deficits, external debt accumulation, and, in some cases, overheating when these economies operate beyond their potential output level for an extended period of time. The relevant question in this context is whether the rate at which a country is taking on external debt has useful predictive information about financial crises.
Gizem Kosar, Wilbert van der Klaauw, Olivier Armantier, and John Conlon
The Tax Cuts and Jobs Act of 2017 changed the tax brackets, tax rates, credits and deductions for individuals and similarly altered corporate tax rates, deductions and exclusions. In this post, we examine whether the reform has shifted individuals’ expectations about their financial situation and the macroeconomic outlook. We also ask whether households have already started to adjust their behavior in line with their expectations. In order to answer these questions, we use novel data from a special module of the New York Fed’s Survey of Consumer Expectations (SCE) fielded in February 2018 to a nationally representative sample of heads of households.
Domenico Giannone, Michele Lenza, and Giorgio E. Primiceri
The availability of large data sets, combined with advances in the fields of statistics, machine learning, and econometrics, have generated interest in forecasting models that include many possible predictive variables. Are economic data sufficiently informative to warrant selecting a handful of the most useful predictors from this larger pool of variables? This post documents that they usually are not, based on applications in macroeconomics, microeconomics, and finance.
Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw
At a press briefing this morning, economists at the New York Fed focused on the evolution of housing wealth and its use as collateral. Their comments came in connection with the Center for Microeconomic Data’s release of its Quarterly Report on Household Debt and Credit for the first quarter of this year. The briefing opened with remarks from Director of Research Beverly Hirtle, who described the importance of housing wealth and how it has evolved since 2000. Bank economists then explored the data on housing wealth more deeply in this presentation, which includes three parts: (1) an overview of recent developments on household balance sheets, with a focus on housing values and mortgage debt; (2) a discussion of how housing wealth has changed over time and how it is distributed across households; and (3) facts on the changing nature of how households have used their home equity.
Almost half the U.S. merchandise trade deficit was tied to petroleum ten years ago. Oil prices were above $100 a barrel, the economy was doing well enough that oil consumption was growing despite high oil prices, and domestic oil production was falling. The U.S. petroleum trade balance has since narrowed substantially from $400 billion in 2008 to under $65 billion in 2017 as a result of lower oil prices, higher domestic production, and a prolonged period of flat-to-falling petroleum consumption. Going forward, the changes in domestic production and consumption have significantly moderated the impact of oil prices on the petroleum trade deficit. That is, changes in oil prices are increasingly redirecting income between domestic consumers and producers rather than between U.S. consumers and foreign oil producers.
Michael Cai, Marco Del Negro, Marc Giannoni, Abhi Gupta, and Pearl Li
The years following the Great Recession were challenging for forecasters for a variety of reasons, including an unprecedented policy environment. This post, based on our recently released working paper, documents the real-time forecasting performance of the New York Fed dynamic stochastic general equilibrium (DSGE) model in the wake of the Great Recession. We show that the model’s predictive accuracy was on par with that of private forecasters and proved to be quite a bit better, at least in terms of GDP growth, than that of the median forecasts from the Federal Open Market Committee’s (FOMC) Summary of Economic Projections (SEP).
The global financial crisis, and the ensuing Dodd-Frank Act, identified size and complexity as determinants of banks’ systemic importance, increasing the potential risks to financial stability. While it’s known that big banks haven’t shrunk, the question that remains is: have they simplified? In this post, we show that while the largest U.S. bank holding companies (BHCs) have somewhat simplified their organizational structures, they remain very complex. The industries spanned by entities within the BHCs have shifted more than they have declined, and the countries in which some large BHCs have entities still include numerous “secrecy” or tax-haven locations.
Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.
The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s Research Group.
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The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.
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